Japan’s benchmark yield climbed back above the central bank’s ceiling amid a global bond selloff and as traders prepared to hear from the new central bank governor nominee.
(Bloomberg) — Japan’s benchmark yield climbed back above the central bank’s ceiling amid a global bond selloff and as traders prepared to hear from the new central bank governor nominee.
The 10-year yield rose 1/2 basis point to 0.505%, while the Bank of Japan announced an unscheduled bond-buying operation in a bid to cap its rise. Economist Kazuo Ueda, the nominee for the BOJ governorship, will face a confirmation hearing on Friday when the nation releases January inflation data.
“There a lot of worries about sticky inflation and Japan is no exception,” said Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore. “Against a backdrop of persistent price pressures, the current yield-curve-control settings do not appear tenable.”
Traders continue to bet on further policy tweaks, with many speculating the BOJ’s cap on bond yields will have to be scrapped as it looks increasingly unsustainable amid rising inflation at home and abroad. Investors are trying to get a sense of whether Ueda, a former BOJ board member, is more of a dove or a hawk.
The BOJ doubled its policy ceiling to 0.5% in December, in a bid to improve market functioning but just ended up buying more bonds to defend the new cap. It pushed back against intensified speculation for more adjustments in January and kept policy unchanged.
On Wednesday, the central bank said it would buy ¥300 billion ($2.2 billion) of five-to-10 year notes and ¥100 billion of 10-to-25 year debt at market yields. These are on top of standing daily operations of offering to by unlimited amounts of 10-year notes at a fixed yield of 0.5%.
(Adds strategist comment in the third paragraph.)
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